Addressing what appear to be issues of first impression in the Ninth Circuit, the court of appeals recently reversed two district court orders approving class action settlements.

In Radcliffe v. Experian Information Solutions, Inc., No. 11-56376 (as amended May 2, 2013), the court held that “conditional” incentive awards to class representatives invalidated the settlement by creating a conflict of interest between the class representatives and the rest of the class members. In the case before it, the class representatives were to receive US$5,000 incentive awards, but only if they accepted the settlement agreement. They risked receiving as little as US$26 as class members if they objected. The court found that this “removed a critical check on the fairness of the class-action settlement, which rests on the unbiased judgment of class representatives similarly situated to absent class members.” Thus, the class representatives could no longer “fairly and adequately protect the interests of the class” under Federal Rule 23.

In In re HP Inkjet Printer Litigation, No. 11-16097 (May 15, 2013), the court interpreted the Class Action Fairness Act provisions that govern the calculation of attorney fee awards when a settlement involves coupons. The trial court had estimated the “ultimate value” of the settlement, including coupons and injunctive relief, to be US$1.5 million, and awarded a lodestar fee of US$1.5 million. The court of appeals found that the fee award was improper because Section 1712(c) required the trial court to calculate fees attributable to the coupon relief separately from the fees attributable to the injunctive relief. While a lodestar fee award is appropriate for injunctive relief obtained, any fees attributable to the coupon relief must be based on the actual redemption value of the coupons. The court explained that such an approach helped to address “the ‘inequities’ that arise when class counsel receive attorneys’ fees that are grossly disproportionate to the actual value of the coupon relief obtained for the class.”